SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

___________________________

 

FORM 10-Q

(Mark One)

 

 

 

X

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 

 

EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended

September 30, 2009

 

 

 

OR

 

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

 

 

EXCHANGE ACT OF 1934

 

 

 

For the transition period from

 

to

 

 

 

 

Commission File Number 000-51093

 

 

 

KEARNY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

UNITED STATES

 

22-3803741

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

120 Passaic Ave., Fairfield, New Jersey

 

07004-3510

(Address of principal executive offices)

 

(Zip Code)

 

 

 

Registrant’s telephone number, including area code

973-244-4500

 

 

 

 

 

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 2, 2009.

 

 

 

$0.10 par value common stock - 69,127,100 shares outstanding

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

 

INDEX

 

 

 

 

Page

 

 

Number

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1:

Financial Statements

 

 

 

 

 

 

Consolidated Statements of Financial Condition

 

 

 

at September 30, 2009 and June 30, 2009 (Unaudited)

 

1

 

 

 

 

Consolidated Statements of Income for the Three Months

 

 

 

Ended September 30, 2009 and 2008 (Unaudited)

 

2-3

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three

 

 

 

Months Ended September 30, 2009 and 2008 (Unaudited)

 

4-6

 

 

 

 

Consolidated Statements of Cash Flows for the Three

 

 

 

Months Ended September 30, 2009 and 2008 (Unaudited)

 

7-8

 

 

 

 

Notes to Consolidated Financial Statements

 

9-29

 

 

 

Item 2:

Management’s Discussion and Analysis of

 

 

 

Financial Condition and Results of Operations

 

30-42

 

 

 

Item 3:

Quantitative and Qualitative Disclosure About Market Risk

 

43-50

 

 

 

Item 4:

Controls and Procedures

 

51

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

52-54

 

 

 

 

 

 

SIGNATURES

 

55

 

 

 

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data, Unaudited)

 

 

 

 

September 30,

 

June 30,

 

 

 

2009

 

2009

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

 

$

31,632

 

$

25,970

 

Interest-bearing deposits in other banks

 

 

89,973

 

 

185,555

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

121,605

 

 

211,525

 

 

 

 

 

 

 

 

 

Securities available for sale (amortized cost $31,533 and $31,658)

 

 

29,633

 

 

28,027

 

Securities held to maturity (estimated fair value $50,000 and $0)

 

 

50,000

 

 

 

Loans receivable, including net deferred loan costs of $586 and $962

 

 

1,059,669

 

 

1,045,847

 

Less allowance for loan losses

 

 

(6,810

)

 

(6,434

)

 

 

 

 

 

 

 

 

Net Loans Receivable

 

 

1,052,859

 

 

1,039,413

 

 

 

 

 

 

 

 

 

Mortgage-backed securities available for sale (amortized cost $724,847 and $665,127)

 

 

749,166

 

 

683,785

 

Mortgage-backed securities held to maturity (estimated fair value $3,685 and $3,678)

 

 

3,811

 

 

4,321

 

Premises and equipment

 

 

35,810

 

 

35,495

 

Federal Home Loan Bank of New York (“FHLB”) stock

 

 

12,950

 

 

12,950

 

Interest receivable

 

 

8,136

 

 

8,237

 

Goodwill

 

 

82,263

 

 

82,263

 

Bank owned life insurance

 

 

16,407

 

 

16,267

 

Deferred income tax assets, net

 

 

 

 

1,395

 

Other assets

 

 

2,009

 

 

1,243

 

 

 

 

 

 

 

 

 

Total Assets

 

$

2,164,649

 

$

2,124,921

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Non-interest bearing

 

$

55,659

 

$

51,210

 

Interest-bearing

 

 

1,400,346

 

 

1,369,991

 

 

 

 

 

 

 

 

 

Total Deposits

 

 

1,456,005

 

 

1,421,201

 

 

 

 

 

 

 

 

 

Advances from FHLB

 

 

210,000

 

 

210,000

 

Advance payments by borrowers for taxes

 

 

5,456

 

 

5,714

 

Deferred income tax liabilities, net

 

 

1,033

 

 

 

Other liabilities

 

 

10,198

 

 

11,286

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

1,682,692

 

 

1,648,201

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock $0.10 par value, 25,000,000 shares authorized; none issued

 

 

 

 

 

 

 

and outstanding

 

 

 

 

 

Common stock $0.10 par value, 75,000,000 shares authorized; 72,737,500 shares

 

 

 

 

 

 

 

issued; 69,155,000 and 69,241,600 shares outstanding, respectively

 

 

7,274

 

 

7,274

 

Paid-in capital

 

 

209,928

 

 

208,577

 

Retained earnings

 

 

309,930

 

 

309,687

 

Unearned Employee Stock Ownership Plan shares; 1,078,939 shares

 

 

 

 

 

 

 

and 1,115,308 shares, respectively

 

 

(10,789

)

 

(11,153

)

Treasury stock, at cost; 3,582,500 shares and 3,495,900 shares, respectively

 

 

(46,953

)

 

(45,985

)

Accumulated other comprehensive income

 

 

12,567

 

 

8,320

 

 

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

 

481,957

 

 

476,720

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

2,164,649

 

$

2,124,921

 

 

See notes to consolidated financial statements.

 

1

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data, Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

Interest Income:

 

 

 

 

 

 

 

Loans

 

$

14,879

 

$

15,102

 

Mortgage-backed securities

 

 

7,829

 

 

9,124

 

Securities:

 

 

 

 

 

 

 

Taxable

 

 

60

 

 

126

 

Tax-exempt

 

 

158

 

 

159

 

Other interest-earning assets

 

 

230

 

 

649

 

 

 

 

 

 

 

 

 

Total Interest Income

 

 

23,156

 

 

25,160

 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

Deposits

 

 

7,828

 

 

9,730

 

Borrowings

 

 

2,075

 

 

2,187

 

 

 

 

 

 

 

 

 

Total Interest Expense

 

 

9,903

 

 

11,917

 

 

 

 

 

 

 

 

 

Net Interest Income

 

 

13,253

 

 

13,243

 

 

 

 

 

 

 

 

 

Provision for Loan Losses

 

 

858

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income after Provision

 

 

 

 

 

 

 

for Loan Losses

 

 

12,395

 

 

13,243

 

 

 

 

 

 

 

 

 

Non-Interest Income:

 

 

 

 

 

 

 

Fees and service charges

 

 

378

 

 

428

 

Loss on sale of securities

 

 

 

 

(415

)

Other-than-temporary security

 

 

 

 

 

 

 

impairment:

 

 

 

 

 

 

 

Total

 

 

(295

)

 

 

Less: Portion recognized in

 

 

 

 

 

 

 

other comprehensive income

 

 

197

 

 

 

Portion recognized in earnings

 

 

(98

)

 

 

Miscellaneous

 

 

240

 

 

295

 

 

 

 

 

 

 

 

 

Total Non-Interest Income

 

 

520

 

 

308

 

 

 

 

 

 

 

 

 

Non-Interest Expenses:

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

6,682

 

 

6,414

 

Net occupancy expense of

 

 

 

 

 

 

 

premises

 

 

1,017

 

 

1,003

 

Equipment

 

 

1,072

 

 

1,071

 

Advertising

 

 

214

 

 

298

 

Federal deposit insurance

 

 

 

 

 

 

 

premium

 

 

157

 

 

54

 

Directors’ compensation

 

 

556

 

 

556

 

Miscellaneous

 

 

1,319

 

 

1,222

 

 

 

 

 

 

 

 

 

Total Non-Interest Expenses

 

$

11,017

 

$

10,618

 

 

 

2

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(In Thousands, Except Per Share Data, Unaudited)

 

 

 

 

Three Months Ended
September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

$

1,898

 

$

2,933

 

Income Taxes

 

 

803

 

 

1,197

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,095

 

$

1,736

 

 

 

 

 

 

 

 

 

Net Income per Common

 

 

 

 

 

 

 

Share (EPS):

 

 

 

 

 

 

 

Basic

 

$

0.02

 

$

0.03

 

Diluted

 

 

0.02

 

 

0.03

 

 

 

 

 

 

 

 

 

Weighted Average Number of

 

 

 

 

 

 

 

Common Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

 

68,074

 

 

69,205

 

Diluted

 

 

68,074

 

 

69,236

 

 

 

 

 

 

 

 

 

Dividends Declared Per Common

 

 

 

 

 

 

 

Share (Public)

 

$

0.05

 

$

0.05

 

 

See notes to consolidated financial statements.

 

 

3

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2008

(In Thousands, Except Share Data, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unearned

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

ESOP

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Stock

 

 

(Loss) Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - June 30, 2008

 

70,489

 

 

$

7,274

 

 

$

203,266

 

 

$

307,186

 

 

$

(12,608

)

 

$

(32,023

)

 

$

(1,724

)

 

$

471,371

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

1,736

 

 

 

 

 

 

 

 

 

 

 

 

1,736

 

Realized gain on securities available for sale, net of income tax benefit of $170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

245

 

 

 

245

 

Unrealized gain on securities available for sale, net of deferred income tax expense of $925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,387

 

 

 

1,387

 

Benefit plans, net of deferred income expense tax of $66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95

 

 

 

95

 

Total Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,463

 

Adjustment to apply FASB Statement No. 158 measurement date provisions, net of income tax benefit of $34

 

 

 

 

 

 

 

 

 

 

(66

)

 

 

 

 

 

 

 

 

16

 

 

 

(50

)

Cumulative-effect adjustment to initially apply EITF Issue No. 06-4

 

 

 

 

 

 

 

 

 

 

(480

)

 

 

 

 

 

 

 

 

 

 

 

(480

)

ESOP shares committed to be released (36 shares)

 

 

 

 

 

 

 

98

 

 

 

 

 

 

364

 

 

 

 

 

 

 

 

 

462

 

Dividends contributed for payment of ESOP loan

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

See notes to consolidated financial statements.

 

4

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2008

(In Thousands, Except Share Data, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unearned

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

ESOP

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Stock

 

 

(Loss) Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option expense

 

 

 

 

 

 

 

476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

Treasury stock purchases

 

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(542

)

 

 

 

 

 

(542

)

Restricted stock plan shares earned

   (63 shares)

 

 

 

 

 

 

 

772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

772

 

Tax effect from stock based compensation

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Cash dividends declared ($0.05/public share)

 

 

 

 

 

 

 

 

 

 

(908

)

 

 

 

 

 

 

 

 

 

 

 

(908

)

Balance - September 30, 2008

 

70,441

 

 

$

7,274

 

 

$

204,646

 

 

$

307,468

 

 

$

(12,244

)

 

$

(32,565

)

 

$

19

 

 

$

474,598

 

 

 

 

See notes to consolidated financial statements.

5

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2009

(In Thousands, Except Share Data, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unearned

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

ESOP

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Stock

 

 

Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - June 30, 2009

 

69,242

 

 

$

7,274

 

 

$

208,577

 

 

$

309,687

 

 

$

(11,153

)

 

$

(45,985

)

 

$

8,320

 

 

$

476,720

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

1,095

 

 

 

 

 

 

 

 

 

 

 

 

1,095

 

Unrealized gain on securities available for sale, net of deferred income tax expense of $925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,372

 

 

 

4,372

 

Non-credit other-than-temporary
impairment losses on securities
held to maturity, net of deferred
income tax benefit of $78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(115

)

 

 

(115

)

Benefit plans, net of deferred income expense tax of $7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(10

)

Total Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,342

 

ESOP shares committed to be released

  (36 shares)

 

 

 

 

 

 

 

38

 

 

 

 

 

 

364

 

 

 

 

 

 

 

 

 

402

 

Dividends contributed for payment of ESOP loan

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

Stock option expense

 

 

 

 

 

 

 

476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

Treasury stock purchases

 

(87

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(968

)

 

 

 

 

 

(968

)

Restricted stock plan shares earned
(63 shares)

 

 

 

 

 

 

 

771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

771

 

Tax effect from stock based
compensation

 

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41

 

Cash dividends declared (0.05/public shares)

 

 

 

 

 

 

 

 

 

 

(852

)

 

 

 

 

 

 

 

 

 

 

 

(852

)

Balance – September 30, 2009

 

69,155

 

 

$

7274

 

 

$

209,928

 

 

$

309,930

 

 

$

(10,789

)

 

$

(46,953

)

 

$

12,567

 

 

$

481,957

 

 

 

 

 

See notes to consolidated financial statements.

6

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)

 

 

 

 

Three Months Ended
September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

1,095

 

$

1,736

 

Adjustments to reconcile net income to net cash provided by operating

 

 

 

 

 

 

 

activities:

 

 

 

 

 

 

 

Depreciation and amortization of premises and equipment

 

 

425

 

 

456

 

Net amortization of premiums, discounts and loan fees and costs

 

 

162

 

 

179

 

Deferred income taxes

 

 

(507

)

 

(323

)

Amortization of intangible assets

 

 

7

 

 

11

 

Amortization of benefit plans’ unrecognized net loss, net of gain

 

 

 

 

 

 

 

from curtailment

 

 

36

 

 

49

 

Provision for loan losses

 

 

858

 

 

 

Realized loss on sales of securities available for sale

 

 

 

 

415

 

Loss on other-than-temporary impairment of securities

 

 

98

 

 

 

Increase in cash surrender value of bank owned life insurance

 

 

(140

)

 

(145

)

ESOP, stock option plan and restricted stock plan expenses

 

 

1,649

 

 

1,710

 

Decrease (increase) in interest receivable

 

 

101

 

 

(91

)

(Increase) decrease in other assets

 

 

(232

)

 

396

 

Increase in interest payable

 

 

4

 

 

7

 

(Decrease) increase  in other liabilities

 

 

(1,138

)

 

935

 

 

 

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

 

2,418

 

 

5,335

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Proceeds from sale of securities available for sale

 

 

 

 

7,325

 

Proceeds from repayments of securities available for sale

 

 

126

 

 

238

 

Purchase of securities held to maturity

 

 

(50,000

)

 

 

Purchase of loans

 

 

(20,659

)

 

(27,032

)

Net decrease (increase) in loans receivable

 

 

5,747

 

 

(26,966

)

Purchases of mortgage-backed securities available for sale

 

 

(105,098

)

 

(11,808

)

Purchases of mortgage-backed securities held to maturity

 

 

 

 

(5,972

)

Principal repayments on mortgage-backed securities available for sale

 

 

45,236

 

 

37,781

 

Principal repayments on mortgage-backed securities held to maturity

 

 

264

 

 

153

 

Additions to premises and equipment

 

 

(740

)

 

(585

)

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

$

(125,124

)

$

(26,866

)

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands, Unaudited)

 

 

 

 

Three Months Ended
September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

$

34,801

 

$

(29,984

)

Increase (decrease) in advance payments by borrowers for taxes

 

 

(258

)

 

36

 

Dividends paid to minority stockholders of Kearny Financial Corp.

 

 

(855

)

 

(912

)

Purchase of common stock of Kearny Financial Corp. for treasury

 

 

(968

)

 

(542

)

Dividends contributed for payment of ESOP loan

 

 

25

 

 

19

 

Tax benefit from stock based compensation

 

 

41

 

 

15

 

 

 

 

 

 

 

 

 

Net Cash Provided by (Used In) Financing Activities

 

 

32,786

 

 

(31,368

)

 

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

 

(89,920

)

 

(52,899

)

 

 

 

 

 

 

 

 

Cash and Cash Equivalents – Beginning

 

 

211,525

 

 

131,723

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents – Ending

 

$

121,605

 

$

78,824

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flows Information:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Income taxes, net of refunds

 

$

1,506

 

$

531

 

 

 

 

 

 

 

 

 

Interest

 

$

9,899

 

$

11,910

 

 

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

 

Increase in real estate owned

 

$

543

 

$

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

8

 

 


KEARNY FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include the accounts of Kearny Financial Corp. (the “Company”), its wholly-owned subsidiaries, Kearny Federal Savings Bank (the “Bank”) and Kearny Financial Securities, Inc., and the Bank’s wholly-owned subsidiaries, KFS Financial Services, Inc. and KFS Investment Corp. The Company conducts its business principally through the Bank. Management prepared the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, including the elimination of all significant inter-company accounts and transactions during consolidation.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, income, changes in stockholders’ equity and cash flows in conformity with generally accepted accounting principles (“GAAP”). However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three-month period ended September 30, 2009, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period.

 

The data in the consolidated statements of financial condition for June 30, 2009 was derived from the Company’s annual report on Form 10-K. That data, along with the interim financial information presented in the consolidated statements of financial condition, income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2009 consolidated financial statements, including the notes thereto included in the Company’s annual report on Form 10-K.

 

3. NET INCOME PER COMMON SHARE (“EPS”)

 

Basic EPS is based on the weighted average number of common shares actually outstanding including restricted stock awards (see following paragraph) adjusted for Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.

 

In June 2008, the Financial Accounting Standards Board (“FASB”) issued guidance on determining whether instruments granted in share-based payment transactions are participating securities. This guidance clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. This guidance is effective for fiscal years beginning after December 15, 2008. The implementation of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

9

 

 


The following is a reconciliation of the numerator and denominators of the basic and diluted earnings per share computations:

 

 

 

 

Three Months Ended

 

 

September 30, 2009

 

 

 

 

 

 

 

Per

 

 

Income

 

Share

 

Share

 

 

(Numerator)

 

(Denominator)

 

Amount

 

 

(In thousands, Except Per Share Data)

 

 

 

 

 

 

 

 

 

Net income

 

$

1,095

 

 

 

 

 

Basic earnings per share,

 

 

 

 

 

 

 

 

income available to

 

 

 

 

 

 

 

 

common stockholders

 

 

1,095

 

68,074

 

$

0.02

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,095

 

68,074

 

$

0.02

 

 

 

 

Three Months Ended

 

 

September 30, 2008

 

 

 

 

 

 

 

Per

 

 

Income

 

Share

 

Share

 

 

(Numerator)

 

(Denominator)

 

Amount

 

 

(In thousands, Except Per Share Data)

 

 

 

 

 

 

 

 

 

Net income

 

$

1,736

 

 

 

 

 

Basic earnings per share,

 

 

 

 

 

 

 

 

income available to

 

 

 

 

 

 

 

 

common stockholders

 

 

1,736

 

69,205

 

$

0.03

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options

 

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,736

 

69,236

 

$

0.03

 

 

4. SUBSEQUENT EVENTS

 

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2009, for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through November 9, 2009, the date this document was filed.

 

5. RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2008, the FASB issued guidance concerning accounting for transfers of financial assets and repurchase financing transactions. This guidance addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one “linked” transaction. The guidance includes a “rebuttable presumption” that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The guidance is effective for fiscal years beginning after November 15, 2008 and applies only to original transfers made after that date; early adoption will not be allowed. The implementation of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

10

 

 


In March 2008, the FASB issued guidance concerning disclosures about derivative instruments and hedging activities, an amendment to previous guidance on the topic. This guidance requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. This guidance also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of the previous guidance has been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. The guidance is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The implementation of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In April 2008, the FASB issued guidance concerning determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under guidance concerning goodwill and other intangible assets. The intent of this guidance is to improve the consistency between the useful life of a recognized intangible asset under guidance concerning goodwill and other intangible assets and the period of expected cash flows used to measure the fair value of the asset under guidance concerning business combinations, and other GAAP. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The implementation of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In June 2009, the FASB issued guidance concerning accounting for transfers of financial assets, an amendment to previous guidance on the topic. This statement prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets. Specifically, among other aspects, this guidance amends previous guidance concerning accounting for transfers and servicing of financial assets and extinguishments of liabilities by removing the concept of a qualifying special-purpose entity from previous guidance on transfers and servicing and removes the exception from applying previous guidance on transfers and servicing to variable interest entities that are qualifying special-purpose entities. It also modifies the financial-components approach used in previous guidance. This guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

 

In June 2009, the FASB issued guidance concerning consolidation of variable interest entities to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This guidance also amends previous guidance to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

 

In June 2009, the FASB issued guidance to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities

 

11

 

 


in preparation of financial statements in conformity with GAAP in the United States. This guidance is effective for interim and annual periods ending after September 15, 2009. The implementation of this standard did not have a material impact on the Company’s consolidated financial position or results of operations.

 

In October 2009, the FASB issued guidance concerning accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. The guidance amends earlier guidance and provides direction for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with the guidance on fair value measurements and disclosures and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

 

6. STOCK REPURCHASE PLANS

 

On March 3, 2009, the Company announced that the Board of Directors authorized a fourth stock repurchase plan to acquire up to 936,323 shares, or 5% of the Company’s outstanding stock held by persons other than Kearny MHC. During the quarter ended September 30, 2009, the Company purchased in the open market 86,600 shares at a cost of $968,000, or approximately $11.18 per share. In accordance with the fourth stock repurchase plan, as of September 30, 2009 the Company has purchased in the open market 487,700 shares at a cost of $5.1 million, or approximately $10.55 per share.

7. DIVIDEND WAIVER

 

During the quarter ended September 30, 2009, Kearny MHC, the federally chartered mutual holding company of the Company waived its right, in accordance with the non-objection previously granted by the Office of Thrift Supervision (“OTS”), to receive cash dividends of approximately $2.5 million declared on the shares of Company common stock it owns.

 

12

 

 


8. SECURITIES AVAILABLE FOR SALE

 

The amortized cost, gross unrealized gains and losses, estimated fair value and stratification by contractual maturity of securities available for sale at September 30 and June 30, 2009 are presented below:

 

 

 

At September 30,

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Carrying
Value

 

 

 

(In Thousands)

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred securities

 

$

8,848

 

$

40

 

$

2,810

 

$

6,078

 

U.S. agency securities

 

 

4,518

 

 

 

 

67

 

 

4,451

 

Obligations of state and political

 

 

 

 

 

 

 

 

 

 

 

 

 

subdivisions

 

 

18,167

 

 

937

 

 

 

 

19,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

 

31,533

 

 

977

 

 

2,877

 

 

29,633

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

Government National Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

Association

 

 

16,861

 

 

984

 

 

44

 

 

17,801

 

Federal Home Loan Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporation

 

 

294,947

 

 

10,001

 

 

82

 

 

304,866

 

Federal National Mortgage Association

 

 

413,039

 

 

13,639

 

 

179

 

 

426,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage-backed securities

 

 

724,847

 

 

24,624

 

 

305

 

 

749,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

756,380

 

$

25,601

 

$

3,182

 

$

778,799

 

 

 

 

 

At September 30, 2009

 

 

 

Amortized
Cost

 

Carrying
Value

 

 

 

(In Thousands)

 

Debt securities:

 

 

 

 

 

 

 

Due in one year or less

 

$

 

$

 

Due after one year through five years

 

 

3,916

 

 

4,129

 

Due after five years through ten years

 

 

14,213

 

 

14,916

 

Due after ten years

 

 

13,404

 

 

10,588

 

 

 

 

 

 

 

 

 

Total

 

$

31,533

 

$

29,633

 

 

 

13

 

 


 

 

 

At June 30, 2009

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Carrying
Value

 

 

 

(In Thousands)

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust preferred securities

 

$

8,846

 

$

40

 

$

3,756

 

$

5,130

 

U.S. agency securities

 

 

4,645

 

 

 

 

88

 

 

4,557

 

Obligations of state and political

 

 

 

 

 

 

 

 

 

 

 

 

 

subdivisions

 

 

18,167

 

 

237

 

 

64

 

 

18,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

 

31,658

 

 

277

 

 

3,908

 

 

28,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage pass-through securities:

Government National Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

Association

 

 

17,620

 

 

861

 

 

50

 

 

18,431

 

Federal Home Loan Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporation

 

 

282,068

 

 

7,980

 

 

580

 

 

289,468

 

Federal National Mortgage Association

 

 

365,439

 

 

10,723

 

 

276

 

 

375,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage-backed securities

 

 

665,127

 

 

19,564

 

 

906

 

 

683,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

 

$

696,785

 

$

19,841

 

$

4,814

 

$

711,812

 

 

There were no sales of securities from the available for sale portfolio during the three months ended September 30, 2009. During the three months ended September 30, 2008, the Company executed a redemption-in-kind transaction through which it exchanged its investment in the AMF Ultra Short Mortgage Fund (“AMF Fund”) for a pro-rata portion of its assets in the fund in lieu of a cash redemption. The assets acquired in the transaction included $6.0 million of mortgage-backed securities and $1.3 million in cash held by the fund. The Company recorded losses on the sale of the AMF Fund totaling $415,000 associated with the in-kind redemption transaction.

At September 30 and June 30, 2009, mortgage-backed securities available for sale with carrying value of approximately $242.5 million and $245.2 million, respectively, were utilized as collateral for borrowings via repurchase agreements through the FHLB of New York. As of those same dates, mortgage-backed securities available for sale with carrying value of approximately $1.6 million and $1.6 million, respectively, were pledged to secure public funds on deposit.

At September 30 and June 30, 2009, all obligations of states and political subdivisions were guaranteed by insurance policies issued by various insurance companies.

The Company’s available for sale mortgage-backed securities are generally secured by residential mortgage loans with contractual maturities of 15 years or greater. However, the effective lives of those securities are generally shorter than their contractual maturities due to principal amortization and prepayment of the mortgage loans comprised within those securities. Investors in mortgage pass-through securities generally share in the receipt of principal repayments on a pro-rata basis as paid by the borrowers.

 

 

14

 

 


 

9. SECURITIES HELD TO MATURITY  

 

The amortized cost, gross unrealized gains and losses and estimated fair value of securities held to maturity at September 30 and June 30, 2009 are as follows:

 

 

 

At September 30, 2009

 

 

 

Carrying
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(In Thousands)

 

Securities: